Q : FICCI came out with a report regarding the definition of MSMEs. One issue in the definition is perhaps what should be the cap for MSMEs? Periodically it is being revised and then it has to go to the Parliament for the amendment of the Act. One solution probably is linking it to inflation index. How do you think this can be addressed and is FICCI working towards it?
A : We have always been in touch with the Ministry and we had discussed this issue of caps and how they can be indexing done like you are suggesting. I think the time has come when we have to look at ourselves as a mature economy.
In a mature market economy, it should be immaterial of what you are and what you are not. If you have a good business model, that’s all that should matter.
I think the government is also slowly moving towards a situation where there is equilibrium in terms of all people functioning in a particular manner in a market economy. It is time to give some particular incentive, and tremendous incentives have been given to SMEs.
Most recently, as you have seen yourself, the superb startup event that happened, many of those incentives will actually be linked to startups and therefore those startups would be SMEs because they will be covered under that.
I think if we really want us to be an asset in a mature economy, we must come to a situation where there should be a common set of incentives which would be available.
It should basically be taxation systems, financial systems, and credit policies. Those should determine how the market actually functions. Based on that, people find their slots within it.
I think all of us are striving towards that. SMEpost.com is an excellent idea. I complement you on this that you are trying to aggregate both demand and supply by having a virtual portal that provides these kinds of services. I think this is the kind of work we need. We need this not just for SMEs, but country wise for all other sectors.
FICCI itself does it. It has a large digital based platform which we call Biznet which is now almost 20 years old. It has a database of over 2, 00,000 companies and it is providing similar kind of services. If you have a demand, and somebody else has supply, how to link and marry those two together.
These kinds of services will determine the kind of business relationships as we move ahead as well as crucial rather than us looking special incentives and definition and things like that. This is my view.
Q : Arvind Panagariya once said MSMEs work well in sectors where large companies are present such as Gujarat and Tamil Nadu. There are states such as Kerala and West Bengal where large industries don’t come but MSMEs do well. What should be the development model for MSMEs to replicate it in states like Bihar, and elsewhere which are still backward?
A : I think I have slightly different views again on this matter also. It is all about the supply chain. Today in the global world as we are emerging we are beginning to see that the supply chains are not even geographical in nature. Supply chains can be across borders. Supply chains can be of different types and different levels of production.
Different levels of supply are determined by market mechanism. Market mechanics is the combination, as we all know, of supply and demand but they are also a combination of production, raw material, labour and many other components that go into manufacturing and of course services is a different angle which links to it.
If you look ahead, and there is really going to be robotics which is going to take over, certainly it will disrupt supply chain completely. Those advantages of labour will go.
So we have to look ahead, we have to think of India as it emerges. We have the best of talent, innovation, and that’s what startup is all about. They will show that functioning in this 21st century market economy, there is no such thing as one model.
You just described two possible models of having a base and then building around it and those without it. For India as we are integrating as a global market, we are entering supply chains at all level.
SMEs must be part of supply chain in some manner and bring value to it. E-production is more important in manufacturing, logistics and supply chain.
A : Firstly, dispute resolution in taxation administration should be quick and fast.
Secondly, ease of business in terms of its totality, not just so far as taxation is concerned, but the whole context of doing business as here it’s more to do with state governments than with the central government because SMEs deal with municipalities, state governments in all the different parts of India. So that should definitely improve.
The other most important areas are logistics and infrastructure. If we can get logistics and infrastructure and budget could put money into it, so that for a country as a whole logistics and infrastructure improves, that would actually help business and certainly SMEs.
Q : Budget is coming so FICCI and all the apex chambers have sent their wish lists. Government is of the view that all apex chambers only ask for tax concessions and never talk about other issues pertaining to industry. For MSMEs, what is your wish list apart from tax concessions?
A : Our wish list has always been and continues to be ease of doing business. Tax is only one small part of entire production value chains.
Yes, of course at the time of budget we will talk about tax because that is the one which is most relevant. Budget is all about tax. But on the tax part, what FICCI has been talking more than in terms of rates and sops, is about ease of taxation.
In other words, can we have a system by which tax administration is more conducive to business, where we have more questions of claims, counter-claims, demands? The other important issue for consideration is can it (tax) be more structured to be better for business.
This actually impacts SMEs more than anybody else because average SMEs have to go through difficulties in business and its functioning ranging from licensing, day to day inspectors, and movement of goods, logistics.
To me these are more important than tax and therefore in answer to your question I believe that key to SMEs, or any other kind of manufacturing in India, is really the ease of doing business.
We are extremely happy to see that this government has focused on that. They have really moved up the index of World Trade Organisation and World Economic Forum. I am sure there is more that will happen in this direction.